Hot Markets, Investor Sentiment, and IPO Pricing

Alexander Ljungqvist (), Vikram Nanda and Rajdeep Singh ()

The Journal of Business, 2006, vol. 79, issue 4, 1667-1702

Abstract: We model an IPO company's optimal response to the presence of sentiment investors. "Regular" investors are allocated stock that they subsequently sell to sentiment investors. Because sentiment demand may disappear prematurely, carrying IPO stock in inventory is risky, so for regulars to break even the stock must be underpriced. The issuer still gains as the offer price capitalizes part of the regulars' expected trading gain. This resolves the empirical puzzle that issuers do not appear to price their stock aggressively in hot markets. The model generates new refutable predictions regarding the extent of long-run underperformance, offer size, flipping, and lockups.

Date: 2006
References: Add references at CitEc
Citations: View citations in EconPapers (181)

Downloads: (external link)
http://dx.doi.org/10.1086/503644 main text (application/pdf)
Access to the online full text or PDF requires a subscription.

Related works:
Working Paper: Hot Markets, Investor Sentiment and IPO Pricing (2001)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ucp:jnlbus:v:79:y:2006:i:4:p:1667-1702

Access Statistics for this article

More articles in The Journal of Business from University of Chicago Press
Bibliographic data for series maintained by Journals Division ().